S&P’s 3100 Too Big And Too Important To Fall Quickly

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday December 3, 2019.

We’ve noted in the previous Market Outlook that: “based upon recent trading action, the S&P is in an early stage of an overbought correction.”  As anticipated, stocks closed lower Monday as investors digested disappointing manufacturing data along with the latest trade news after capping a month that featured blistering gains.  For the day the Dow Jones Industrial Average fell 0.9 percent to 27,783.04. The S&P also gave up 0.9 percent to 3,113.87 while the Nasdaq Composite pulled back 1 percent to 8,567.99.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped more than 7 percent to 12.62.

Consumer staples outperformed Monday led by Coca-Cola (KO) and Procter & Gamble (PG). As such, the Consumer Staples Select Sector SPDR ETF (XLP) rose 0.23 percent on the day and is up more than 22 percent year to day, slightly underperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in XLP.

The graphics below are from our “U.S. Market Trading Map”, show the near-term technical bias and trading ranges.  As shown, the underlying is in a short-term bullish trend when the price bars are painted in green.  The underlying is in a short-term bearish trend when the price bars are painted in red.  The yellow bars identify period of neutral or sideways trading pattern.  Additionally, the light-blue shading represents the short-term trading range.  A move above or below that range is considered overbought (as represents by the red shading) or oversold (as represents by the dark-green shading).  Readings above or below the red and green shaded areas are considered extremely overbought or extremely oversold.

Chart 1.1 – Consumer Staples Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLP bars in green (buy) – see area ‘A’ in the chart. XLP has been on a tear in recent weeks after the September correction found support near the 2019 rising trend line.  Last week’s upside follow-through confirmed the late November bullish breakout above the September falling trend line. This is a positive development, opened up for a rapid advance toward the next level of resistance at the 127.2% Fibonacci extension, near 63.30. That level is significant in charting terms.  A sustain advance above it will increase the probability for a test of resistance near the 68 zone, or the 161.8% Fibonacci extension

XLP has support near 60.80.  Short-term traders could use that level as the logical level to measure risk against.

Chart 1.2   – S&P 500 index (daily)

Short-term technical outlook shifted to bearish (sell).  Last changed December 2, 2019 from bullish (buy) – (see area ‘A’ in the chart).

[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]

As expected, the S&P retreated after the late November rally ran into resistance near the 3150 zone.  That level roughly corresponds with the lower boundary of the red band.  Momentum indicator shifted lower but it is much closer to overbought than oversold zone, suggesting further short-term weakness likely. Over the next few days, it’d be important to monitor trading behaviors as the 3100 zone is tested as support.  Not only that this area is too big and too important to fall quickly, Money Flow measure still holds above the zero line, indicating a positive net demand for stocks.  It could help minimize downside follow-through and widespread breakdowns.

Short-term trading range: 3100 to 3153.  S&P has support near 3107-3100.  A failure to hold above that level has measured move to 3031.  The index has resistance near 3136.  A breakout above that level has measured move to 3152.

Long-term trading range: 3040 to 3360.  S&P has support near 3040.  A failure to hold above that level has measured move to 2880.  The index has resistance near 3200.  A close above that level has measured move to 3360.

In summary, near-term technical bias shifted to bearish following Monday selloff, signify a downward trend reversal. Nevertheless, it will be important to monitor the retreat and rebound behaviors near the important sentiment 3100 zone to determine whether breakouts are decisive.  That level is too big and too important to fall quickly.  It could help minimize downside follow-through and widespread breakdowns.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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